In Chapter 3, Lesson 5, we talked about your Life Blood as a speculator - your chip stack. Absolutely nothing is more important than protecting it, as without chips you are out of the game.
Your odds in any given bet are 50/50, but due to the random nature of the distribution, you can expect to experience runs of adverse outcomes - 5,10 or more losses in a row. You have to have a plan for weathering these down turns, which is why we gave 3 chip management guidelines, which we will repeat:
1 - No more than 2.5% equity per bet.
2 - No more than 4 of these, or total of 10% of equity risk open at one time.
3 - Reducing bet size during losing streaks, until you regain equity levels.
These common sense steps will help to keep you out of trouble, and ensure you are able to stay at the tables. Then, it will only be a matter of time before you experience one of these runs in your favor. This is how you will stair step your equity curve higher.
As each Trader's personality and risk tolerance are different, I'm sure many of you will scoff at these guidelines, and actually that is OK too.
Everything within the Alchymist Platform and learning Center is geared towards teaching you winning principals, and a winning mindset. You don't need to follow us word for word, but you do need to understand and apply these concepts.
Perhaps you change your risk management parameters to 5% of equity per bet - As long as you understand this will dramatically increase the volatility in your Equity Curve, while simultaneously reducing the number of hands you get to play, then it's your choice. Reducing your bet size will have the opposite effect.
They key point however, is that you think about these concepts and determine the right parameters that will work best for you. You understand that you are going to hit cold streaks, and you pre-plan for how you will handle them and mitigate the damage to your chip stack.
So percentages can be tweaked, but the concepts of loss limits, getting smaller during losing streaks, and pre-planning your betting strategy must be enacted.
If it isn't, what you will find is that during the heat of battle, your emotions will lead you into a mistake. In the heat of battle, when you are taking damage, your fight or flight responses will kick in, usually telling you to do exactly the wrong thing at the wrong time.
You absolutely must take the required steps to protect yourself from yourself.
Have an Out
A over - riding requirement to all of the above is that you must leave yourself an out. What this means is that you have reserves stored someplace else outside of your brokerage account.
I don't care if it's cash in the bank, Precious Metals, Jewelry or some mix of all of the above - You can't take all of your bankroll to the casino at one time.
Simply speaking, too many things can go wrong. You could be robbed exiting the casino, even if you were a winner while playing there. (Think Madoff.. Corzine..)
You could catch a run of bad cards and in a emotional tirade plop everything down at once to "get your money back". We have seen this too many times to count, including in our own trading!
In conclusion, when it comes to Money Management you have to pre-plan defensive tactics that are designed to protect yourself from yourself. If you do so, you ensure long term survival. If you don't, it's only a matter of time before you go bust and experience all the misery that goes along